Economically Independent

The Obama administration and the hotheads in Congress are threatening to hit Russia with “economic sanctions” for moving troops into Crimea. Yes, those sanctions would sting a little bit, but what our politicians should be made aware of is the fact that Russian officials are promising “to respond” if economic sanctions are imposed on them. As you will read about below, one top Kremlin adviser is even suggesting that Russia could abandon the U.S. dollar and start dumping U.S. debt. In addition, he is also suggesting that if sanctions are imposed that Russian companies would not repay the debts that they owe U.S. banks. Needless to say, Russia could do far more economic damage to the United States than the United States could do to Russia. The U.S. financial system relies on the fact that the rest of the planet is going to use our currency to trade with one another and lend gigantic piles of it back to us at super low interest rates. If the rest of the world starts changing their behavior, we are going to be in a massive amount of trouble. Those that believe that the United States is “economically independent” are being quite delusional.

In order for U.S. economic sanctions against Russia to be effective, Europe would also have to get on board.

But that simply is not going to happen.

As I noted yesterday, Russia is the largest exporter of natural gas on the planet. And Russia is also Europe’s largest supplier of energy.

There is no way that Europe could risk having Russia cut off the gas, especially considering the economic condition that Europe is currently in.

To get an idea of just how incredibly dependent the rest of Europe is on Russian natural gas, check out the chart in this article. A whole bunch of European nations get more than half their natural gas from Russia.

And according to the Telegraph, even the UK has already completely ruled out economic sanctions…

Europe would be pushed back into recession, Russia into financial meltdown. This is not the sort of self harm Europe is prepared to contemplate right now. Indeed, thanks to the indiscretion of a UK official, who was snapped going into Downing Street with his briefing documents on display for all the world to see, we know this to be the case. Trade and financial sanctions have already been ruled out.

So the U.S. can do whatever it wants, but Europe is not going to be any help. Perhaps Canada will stand with the U.S., but that will be about it.

On the flip side, the Russian Foreign Ministry is promising “to respond” if the United States does impose economic sanctions…

Russia said on Tuesday that it would retaliate if the United States imposed sanctions over Moscow’s actions in Ukraine.

“We will have to respond,” Foreign Ministry spokesman Alexander Lukashevich said in a statement. “As always in such situations, provoked by rash and irresponsible actions by Washington, we stress: this is not our choice.”

So what would the response look like?

Lukashevich did not say, but top Kremlin adviser Sergei Glazyev is suggesting that Russia could abandon the U.S. dollar and refuse to pay back loans to U.S. banks…

“In the instance of sanctions being applied to stated institutions, we will have to declare the impossibility of returning those loans which were given to Russian institutions by U.S. banks,” RIA quoted Glazyev as saying.

“We will have to move into other currencies, create our own settlement system.”

He added: “We have excellent trade and economic relations with our partners in the east and south and we will find a way to reduce to nothing our financial dependence on the United States but even get out of the sanctions with a big profit to ourselves.”

Glazyev also stated that Russia could start dumping U.S. debt and encourage other nations to start doing the same. The following comes from a Russian news source…

“We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market.“

“An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system.”

On that last point Glazyev is perhaps overstating things.

On their own, the Russians could do a considerable amount of damage to the U.S. financial system, but I doubt that they could completely crash it.

However, if much of the rest of the world started following Russia’s lead, then things could get very interesting.

Just yesterday, I wrote about how China has chosen to publicly stand in agreement with Russia on the Ukrainian crisis.

If China also decided to abandon the U.S. dollar and start dumping U.S. debt, it would be an absolute nightmare for the U.S. financial system.

And keep in mind that the Chinese were already starting to dump a bit of U.S. debt even before this latest crisis. In fact, China dumped nearly 50 billion dollars of U.S. debt in December alone.

The only way that the current bubble of debt-fueled false prosperity in the U.S. can continue is if the rest of the world continues to lend us trillions of dollars at ridiculously low interest rates that are way below the real rate of inflation.

If the rest of the world stops behaving in such an irrational manner, interest rates on U.S. government debt would rise dramatically and that would also mean that interest rates on virtually all other loans throughout our financial system would rise dramatically.

And if that happened, it would be a complete and utter nightmare for our economy.

Unfortunately, most Americans have no understanding of these things. They just assume that we are “the greatest economy in the world” and that nothing is ever going to threaten that.

Well, the truth is that we are rapidly approaching a “turning point”, and after this bubble of false prosperity pops things will never be the same in the United States again.

The percentage of Americans that are economically independent has dropped to a stunningly low level. In order to be economically independent, you have got to be able to take care of yourself without any assistance from anyone else. Unless you are independently wealthy, that means that you either have your own business or you have a full-time job. Unfortunately, as you will see below, the percentage of Americans that are self-employed is at an all-time record low and the percentage of Americans with a full-time job has declined to a level not seen in about 30 years. As a result, more Americans than ever find themselves forced to turn to the government for assistance. When you add it all up, about half of all Americans get money from the government each month these days. And yes, there will always be poor people that cannot take care of themselves that need help, but when you have more than half of the population dependent on the government that is a major problem. You see, the truth is that our independence is systematically being taken away from us and we are steadily being made serfs of the state. And once you become a serf of the state, it is very hard to resist anything the government is doing in a meaningful way. After all, the money that you are getting from the government is enabling you to survive. In essence, your allegiance has been at least partially purchased and you may not even realize it.

Of course this is not how the United States was supposed to operate. We were never intended to be a collectivist nation. Rather, we were intended to be a country where liberty and freedom thrived and where most people would be able to independently take care of themselves.

Unfortunately, it is becoming increasingly difficult to be economically independent in America today. One reason for this is that the environment for small businesses in this country is the most toxic that it has ever been before. The federal government, our state governments and even our local governments are constantly coming up with new ways to oppress small business.

And just this week we learned that the IRS is specifically targeting small business owners and sending them threatening letters.

Yes, you read that correctly. Despite all of the trouble that the IRS is currently in, they are still choosing to specifically go after small businesses with both barrels. As a recent Forbes article explained, the IRS plans to send threatening letters to 20,000 small businesses all over the country…

The tax agency is doing some targeting of its own, fingering at least 20,000 small businesses. And that number will grow. The scrutiny on this group and in this way is a little frightening. Small business people across America are receiving IRS notices. More will be coming. The IRS gathers data from many third parties—including credit card companies—to see if you picked up every nickel of income.

This is absolutely disgusting, but it is just another example of how small business is being eradicated in the United States. As I mentioned in a previous article, the percentage of Americans that are self-employed has dropped to a record low…

Well, at least we can achieve economic independence by getting a full-time job, right?

Sadly, that is becoming increasingly difficult to do as well.

The chart below was created by Chartist Friend from Pittsburgh, and it shows that the percentage of working age Americans with a full-time job dropped sharply to 47 percent during the last recession and it has stayed about that level ever since. The yellow line is the line in the chart which demonstrates this…

As you can see, we briefly touched that level in the 1970s and again briefly in the 1980s, but it is important to remember that the percentage of women that chose to seek employment was much lower back then. When you take that into account, the current level of full-time employment in this country looks even worse.

The quality of jobs in this country has been steadily falling for quite some time, and we are rapidly transitioning to an economy where part-time employment will be much more prominent.

But you can’t support a family or be economically independent on a part-time income. In fact, most of those that try to make it on a part-time income find that they must turn to the government for help.

And right now, a higher percentage of Americans are economically dependent on the government than ever before. The following is from a recent article by Charles Hugh-Smith…

Why? Because half of us are getting a direct check, benefit or payment from the state. Over 61 million people get a check from Social Security, over 50 million draw Medicare benefits, another 50 million get Medicaid benefits, 47 million receive SNAP food stamp benefits, 22 million people work directly for the state on all levels, millions more work for government contractors that are effectively proxies of the state, millions more receive Federally funded extended unemployment, retirement checks, Section 8 housing benefits, and so on.

Orwell underestimated the power of complicity. Once a citizen receives a direct payment from the state, the state has purchased their complicity, for no matter how much that citizen may complain privately about the state, he or she will never risk the payment/benefit by resisting the state in a politically meaningful way.

Once you get a check from the state, you begin loving your servitude. The collusion of the state and its central bank is truly a thing of authoritarian beauty: the central bank (the Federal Reserve) creates money out of thin air and buys government bonds with the new money. The state can thus borrow unlimited sums at low rates of interest, and continue to send tens of millions of individual payments out to buy the passivity and complicity of its citizens.

So what is the solution?

Of course the solution would be for our economy to produce more small businesses and more full-time jobs so that more people could achieve economic independence.

Sadly, right now our system is steadily killing full-time jobs and small businesses, and there does not appear to be any hope for a major turnaround any time soon.

1. Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.

2. According to the U.S. Census Bureau, 49 percent of all Americans live in a home that gets direct monetary benefits from the federal government. Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

4. According to the Survey of Income and Program Participation conducted by the U.S. Census, well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Sadly, that figure does not even include Social Security or Medicare.

5. Today, the federal government runs about 80 different “means-tested welfare programs”, and almost all of those programs have experienced substantial growth in recent years.

6. The number of Americans on Social Security disability now exceeds the entire population of the state of Virginia.

7. If the number of Americans on Social Security disability were gathered into a separate state, it would be the 8th largest state in the country.

8. In 1968, there were 51 full-time workers for every American on disability. Today, there are just 13 full-time workers for every American on disability.

9. Right now, there are approximately 56 million Americans collecting Social Security benefits. By 2035, that number is projected to soar to an astounding 91 million.

14. According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”

15. According to a report from the Center for Immigration Studies, 43 percent of all immigrants that have been in the United States for at least 20 years are still on welfare.

16. Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid, and things are about to get a whole lot worse. It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

17. As I wrote about recently, it is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

18. At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years. That comes to approximately $328,404 for every single household in the United States.

19. Back in 1990, the federal government accounted for just 32 percent of all health care spending in America. It is being projected that the federal government will account for more than 50 percent of all health care spending in the United States very soon.

20. The amount of money that the federal government gives directly to the American people has increased by 32 percent since Barack Obama entered the White House.

Once again, there is certainly nothing wrong with helping the poor, and there will always be people that need a helping hand.

But what we have in America today is far beyond that. What we have in America today is a situation where economic independence is being systematically eradicated and the government is increasingly being expected to provide our daily bread and to take care of all of us from the cradle to the grave.

And once you are dependent on the system, at least part of you is going to become resistant to anyone or anything that threatens to bring meaningful change to the system because your survival depends on the system.